Friday, April 21, 2017

This excellent essay by Steve Rhode appeared earlier on the Personal Finance Syndication Network, PFSyncom and on Mr. Rhode's web site titled Get Out of Debt Guy. contains a variety of good advice and information about all manner of consumer debt problems, including student loans. You can learn more about Steve Rodes here.

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If the recent position by the Department of Education under the Trump
administration is any indication of what is to come for federal student
loan debtors, watch out.On March 16, 2017 the Department of Education rolled back protections
and policies impacting those who hold FFEL federal student loans. The
most recent numbers say about 4.2 million loan holders are in default on
these loans at this time. Millions will be impacted by this policy
change effective immediately as FFEL loan holder default.The Obama administration had issued guidance in 2015 that when
someone defaulted on a FFEL student loan that they had 60 days to bring
the loan back into compliance and current and avoid the tacked on
collection charges of up to 16% of the loan balance. This could be
accomplished through programs such as the student loan rehabilitation
program. It would all debtors to get back on track without exploding
their student loan balances with massive collection costs beyond the
already unaffordable amounts due.Under the Obama administration policies, “A guaranty agency cannot
charge collection costs to a defaulted borrower who, within the 60-day
period following the initial notice, enters into a repayment agreement,
including a rehabilitation agreement, and who honors that agreement.” – Source

The rationale given for this clarification was the distinction
between a debtor who defaulted but intended to repay and one who was not
going to make arrangements and thus cost significantly more to collect
from. If a debtor defaulted and then entered into a repayment
arrangement what would justify 16% of the loan balance in collection
costs? Nothing.But this policy of giving defaulted FFEL loan holders a grace period
to get back on a payment plan goes back to the 1980s and 1990s. This was
not an Obama policy.In 1986, the Department of Education adopted regulations to establish
the procedures for referring defaulted debt, which include giving the
debtor notice of the proposed offset and an opportunity to avoid the
offset by entering into a satisfactory repayment agreement. This policy
was restated in 1992 when the then Department of Education said “the
borrower could avoid the adverse consequences (report of the default
status of the debt, liability for collection costs, and further
collections actions) by making a timely agreement to repay the debt
voluntarily.”That’s all changed now. According to the “Dear Colleague” letter that
was just released, the Trump Department of Education is withdrawing
those policies and so debtors who default on FFEL student loans will
have no grace period and will now face large collection fees to be
immediately tacked on to the loan balance due. In essence, those who can
least afford the default will be penalized and have no incentive to
rehabilitate their loans. – SourceThe Betsy DeVoss Department of Education says the reason to roll back
these rules and policies is because there was an insufficient public
comment period when the policies were put into place. Does anyone really
believe the FFEL student loan debtors would argue against such a
policy? It leaves you wondering why the policy could not have been left
in place during a new public comment period and then a decision made. To
me it sure seems like a Ready-Fire-Aim approach at dealing with student
loan collections and student loan debtors in trouble.But then of course, the immediate and obvious beneficiary of such a
position is going to the be collectors and guaranty agencies who
administer those loans. What do you think? Comment below.Steve RhodeGet Out of Debt Guy – Twitter, G+, Facebook

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About Me

Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.